Court: Rules on Indian smokes sales too cloudy

New York's highest court ruled Tuesday that state laws on tribal sales of cigarettes are so muddled that local district attorneys should not be allowed to prosecute reservation retailers who sell untaxed smokes to non-Indians.

But the court said its ruling did not apply to two major pending Long Island cases involving a federal injunction obtained against retailers at the Poospatuck reservation in Mastic for selling thousands of cases of untaxed bootleg cigarettes, and a federal racketeering prosecution in Central Islip of tribal cigarette kingpin Rodney Morrison.

Those cases "do not involve on-reservation sales of cigarettes to consumers for their personal use but arose from large-scale bootlegging activities" that raise different issues, said the New York Court of Appeals.

In a separate order on New York City's injunction against the Poospatuck retailers, the court also agreed to a federal appeals court's request that it help sort out questions of how state cigarette-tax laws mesh with federal statutes against trafficking in contraband.

City lawyers said the two rulings were favorable signs for the prospects of the injunction they got last year from a federal judge in Brooklyn. The injunction is being appealed.

"It's actually quite good for us," said Eric Proshansky of the New York City corporation counsel's office. "They expressly say what they are deciding does not apply to our case, and they say over and over there is a tax, and that's the important thing."

Daniel Nobel, a lawyer for one of the tribal retailers, disagreed. He said that by drawing a line at "large-scale bootlegging," the court indicated that the city's injunction couldn't bar all untaxed sales to non-Indians. "It's a significant clarification," Nobel said.

The case decided by the court Tuesday involved investigations of sales of untaxed tribal cigarettes by district attorneys in Cayuga and Seneca counties in central New York.

Sales to tribe members are not taxable, while sales to non-Indians are supposed to be taxed. But because New York tax officials have yet to implement a system required by a 2003 law for issuing coupons to tribes for their own tax-free purchases, the court said, retailers can't be held criminally responsible for who buys their untaxed packs.

"Even outside the context of Indian relations, taxpayers are not ordinarily required to guess what they need to do to comply with the tax law," the 4-3 court majority said.

Morrison, one of the Poospatuck retailers enjoined in the city's case, was convicted in a 2004 racketeering case in Central Islip for massive sales of untaxed cigarettes to non-Indians in violation of federal laws against trafficking in contraband.

Last month, however, U.S. District Judge Dennis Hurley vacated the conviction because, he said, confusion about the legality of tribal sales of untaxed cigarettes deprived Morrison of notice that his behavior was illegal.

He sentenced Morrison last week to 10 years in prison on a gun charge. Prosecutors are expected to appeal Hurley's ruling on the racketeering conviction.